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Consumers Holding On To, Not Spending Savings From Lower Oil Prices

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A February 3rd Industry Report from research firm Sterne Agee notes that the anticipated boost to consumer spending from lower oil prices may not be as big as many are predicting given that a recent consumer survey suggests most Americans plan to hold onto a good chunk of the money they are saving.

How much are Americans saving from lower oil prices?

Just exactly how much are Americans saving from lower oil prices is an open question, with estimates ranging from $450 annual savings per household (Sterne Agee estimate using BLS data) to $720 per person per year (VISA estimate).

Annual expenditure data from the U.S. Bureau of Labor Statistics suggest that the average American household spends $2,611 a year on gasoline/motor oil (5.1% of income before taxes).

Moreover, households in the $30,000-$39,000 income range spend $2,241 annually on gas (6.2% of income). Sterne Agee analysts Charles Grom and colleagues make the assumption that gas prices remain around 20% lower year over year for the balance of 2015, and calculate approximately $450 of annual savings for this demographic (per household).

The SA analysts note that the median household income increased by $335 in 2013, so a $450 boost is of some significance.

Credit card firm VISA figures oil below $50 a barrel adds up to $720 extra a year for the average American. In their conference call to discuss earnings on January 29th, Visa management highlighted that the average consumer is saving close to $60 per month from lower gas prices.

VISA’s surveys show that consumers are spending 25% of the cash, saving 50% of it, and using the remaining 25% to pay down existing debt. Of interest, the $15 a month of extra cash is being mainly spent in the grocery, clothing and restaurants categories.

Sterne Agee consumer survey results

Lower Oil Prices

Grom et al. surveyed  more than 300 consumers with a household income of less than $50,000 regarding their financial situation and shopping behaviors last week. The results showed that consumers still have “a mixed view on their financial situations with a relatively even number finding themselves in a better/worse situation than a year ago.”

When consumers were asked where they are spending the extra savings from lower gasoline prices, around 50% said they planned to add to savings accounts and/or pay down debt. Another 40% said they planned to spend more on consumables (food, sundries, beverages), with only the 10% balance noting plans to spend more on durable products.

Lower Oil Prices

Lower Oil Prices

Lower Oil Prices

Also of note: a mere 25% of the consumers polled felt that the decrease in gas prices has very much improved their financial situation, while 32% of consumers felt that lower utility/home heating costs have improved their situation (Figures 4 and 6 enclosed). Moreover, the drop in gas prices has not encouraged 81% of shoppers to travel farther to a Wal-Mart.

Lower Oil Prices

Lower Oil Prices

Finally, Wal-Mart and Dollar General are perceived to offer the lowest prices relative to Target, Family Dollar, and Costco, and among dollar stores, respondents shop Dollar Tree most frequently (48%), followed by Dollar General (31%) and Family Dollar (21%).

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